Bearish View
- Sell the AUD/USD pair and set a take-profit at 0.6450.
- Add a stop-loss at 0.6650.
- Timeline: 1-2 days.
Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6650.
- Add a stop-loss at 0.6450.
The AUD/USD exchange rate retreated for three consecutive days as traders reacted to the Federal Reserve's hawkish interest rate cut. It dropped to the 50-day moving average as focus now shifts to the upcoming Reserve Bank of Australia (RBA) decision.
The AUD/USD pair fell as the US dollar jumped following the October interest rate decision. The bank decided to cut interest rates by 0.25% to a range of 3.75% to 4%. It cited the worsening labor market and the fact that inflation has been a bit moderated.
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In his statement, Jerome Powell noted that the bank may not cut interest rates in the next meeting, as analysts and economists were expecting.
The next important AUD/USD pair will be the upcoming Reserve Bank of Australia (RBA) interest rate decision on Tuesday. Economists polled by Reuters expect the bank to leave interest rates unchanged at 3.6%.
The main reason for this is that Statistics Australia published strong inflation report. This report revealed that the trimmed mean inflation report jumped to 3.0% in Q3 from 2.7% in the previous quarter.
The headline Consumer Price Index (CPI) rose from 2.1% in Q2 to 3.6% in Q3. This means that the figure has moved further away from the bank’s target of 2.0%. Goods inflation jumped to a five-quarter high as automotive fuel soared.
Therefore, it will be difficult for the bank to cut interest rates as this will drive inflation higher. Besides, recent data showed that the Australian labor market has remained strong.
AUD/USD Technical Analysis
The daily timeframe chart shows that the AUD/USD pair dropped slightly as the US Dollar Index (DXY) rose. It dropped as the pair formed a double-top pattern at 0.6612 and whose neckline is at 0.6438, its lowest point in September.
The pair has stabilized at the 50-day Exponential Moving Average (EMA). On the positive side, it has formed a megaphone or a rising broadening wedge pattern. This means that the pair may keep rising in the long term.
However, the pair may drop to the lower side of the wedge and then bounce back. A move below the lower side of the wedge will point to more downside.
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